Ignore Pakistan, Heed China

A few years ago the respected head of a multinational company observed the unreal quality of our public discourse. He said that he had read our newspapers voraciously for two weeks and for every report on China he had counted eight on Pakistan. “To the world at large only China and India matter in Asia,” he said. “When people say that the 21st century will belong to Asia, they have China in mind, and then India. Japan doesn't count, because its demographics are wrong. Pakistan doesn't even exist in the big picture. Although China is currently ahead, India is the only country that could counter-balance it. I realise Pakistan is your neighbour, but so is China.” Listening to him I was reminded of one of Patanjali's yoga aphorisms: “What a man thinks, so he becomes.” Patanjali was referring to controlling our thoughts during meditation, but what is true for an individual is also for a nation. We are obsessed with Pakistan and so we will become like Pakistan--a failed economic and political state. Instead, we should engage with China, the most dynamic economy in the world for two decades. Pakistan is a distraction and pulls us down. China will push us up. What can China teach us? The first lesson is to have clear national objectives. For twenty years China has had only one objective--to become an economic superpower and lift its people out of poverty--and it is pursuing it single-mindedly. Nations, like individuals, perform best when they are one-pointed. The Chinese have learned that law and order, speedy justice, political stability--all good in themselves--also promote growth by creating a sound climate for investment. Chinese leaders wake up in the morning and they think only one thought--the prosperity of their people. What do our leaders think about? The New York Times just reported that there were five Chinese delegations in Bangalore in the last month alone, trying to understand India's success in software. “They have beaten us in everything, now they also want to defeat us in software,” said the CEO of an Indian company who refused the Chinese entry into his premises. Premier Zhu Rongji visited Bangalore this month to woo Indian companies to come to China; he went to Delhi not to talk about Aksai Chin or Pakistan but to establish a Beijing-India airlink. “Foreign investment has been the fuel behind the Chinese miracle”, reported the Wall Street Journal. “Every dollar of foreign investment yields five dollars of additional output to the Chinese economy. That compares with less than two dollars in the state owned sector.” More than fifty per cent of China's phenomenal exports come from foreign enterprises. Even assuming that 70 per cent of Chinese FDI is from non-resident Chinese, the 30 per cent that is not is four times larger than ours. Yet Indians are the ones who fear foreign investment. Our concerns over swadeshi reflect our inferiority complex and our lack of confidence in our ability to compete in the global marketplace. How did the notoriously insular Chinese manage to change their attitude to foreign capital? This is a second lesson China can teach us: how to get more foreign investment. Why China is growing so fast is the result of a phenomenal rise in labour productivity, according to a study by Zulin Hu and Mohsin Khan of the IMF. They trace this not only to foreign enterprises, but also to Chinese town and village enterprises, “which have drawn more than 100 million people from low productivity agriculture into higher value added manufacturing.” Started initially as simple agricultural processing factories, many are now world-class exporters. China's reforms started from below unlike ours, and the third lesson we can learn is to shift the focus of our reforms onto agriculture and the village. Another secret of Chinese productivity is flexible labour laws. The Chinese are able to hire and fire workers based on customer demand. Chinese workers in state enterprises are routinely punished for indiscipline. This is not possible in India. Even when a company is sick and has stopped production, India's public sector workers earn full salary. Hence, a fourth lesson is to reform our labour laws. There are many more lessons. But first, let's first learn to ignore Pakistan and heed China. Every Indian leader should scrawl “China” in big letters in his office to remind him everyday who is our real competitor. While China is currently ahead--it also has a twelve-year head start in economic reforms--our economy has performed well in the past two decades, and if we accelerate our reforms, especially in agriculture and education, we will gain ground. If we don't, then China is going to push us around and humiliate us in the 21st century.

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